New developments to bolster Dubai's retail offerings

 

Dubai is one of the world’s leading shopping capitals, and the retail and wholesale sector is the biggest single contributor to the economy. Local iconic malls are constantly reinventing themselves, searching for new brands and experiences to attract global consumers to spend on fly-and-buy excursions.

The relationship between retail, real estate, air transport and tourism is key to the emirate’s value proposition for consumers and investors. The market’s ecosystem is driven for the most part by the franchise model, which integrates global brands and privately owned family firms to represent their interests in the country and region. The emirate also serves as the base of operations for regional retail and wholesale giants that may have started with a single small shop in Damascus, Basra or Manama, while local brands are using the location to spread across the region. According to real estate consultancy CBRE, Dubai was the third most-popular market for new brand entrants in 2016, with 59 new labels launching in the city, compared to 87 in Hong Kong and 65 in London. New entrants find themselves competing in a more mature market, and spaces are being developed across a city that, according to international real estate company Savills, has more gross leasable area (GLA) per capita than any other international shopping destination except New York.

However, Dubai’s flagship retail sector has been facing headwinds, with consumer confidence falling among key groups of visitors and rapidly developing online alternatives looking to challenge the supremacy of bricks-and-mortar stores. A city that has made a name for itself by reinventing and redefining shopping is striving to engineer a seamless connection between online and offline experiences.

Building Up

Recognising that the emirate could not expect to prosper in the long term by relying on its modest endowment of oil and gas, Sheikh Rashid bin Saeed Al Maktoum, the ruler of Dubai from the late 1950s until 1990, commissioned a series of ambitious projects in the 1970s to transform the area into an international trading hub and global city.

Infrastructure projects included Port Rashid in 1972, Jebel Ali Port in 1979 and Dubai Drydocks in 1983. In order to create the facilities that were to lay the foundations of a developed city, Sheikh Rashid elicited the support and financial backing of many of Dubai’s leading merchant families, including Majid Al Futtaim, which opened its first mall, City Centre Deira, in August 1995, and laid the foundations of a retail business that today stretches across the Middle East, North Africa and parts of Asia.

Retail Promotion

Although there was a 0.8% contraction in the sector’s contribution to GDP in 2016, its contribution appeared to rebound, rising 4.5% year-on-year (y-o-y) in the first quarter of 2017, to reach 7%. Retail has been a key component to growth for several decades. Sheikh Rashid’s son, Crown Prince Sheikh Hamdan bin Mohammed bin Rashid, directed plans for the first Dubai Shopping Festival (DSF) in 1996. In its inaugural year 1.6m people came to the DSF, and by 2011 the impact of the festival had become clear with visitors spending Dh15.1bn ($4.1bn) over the course of the month. A year later the DSF received a record 4.4m visitors. The festival, which typically takes place from December to January, is the responsibility of the Dubai Festivals and Retail Establishment, which also organises shopping events including the Dubai Summer of Surprises and Eid in Dubai – Eid Al Fitr celebrations.

The turn of the millennium saw three major state-backed developers opening destination malls on Sheikh Zayed Road, one of the city’s major transport arteries. The travel-themed Ibn Battuta Mall, opened by Nakheel in 2004, has over 300 stores and was named after a 14th century explorer and traveller. In 2005 Majid Al Futtaim launched the Mall of the Emirates, which boasts luxury stores and Ski Dubai, its own indoor ski resort. Three years later shoppers had their first experience of Dubai Mall, which was built by Emaar to accommodate 600 vendors, dining and entertainment facilities, and an aquarium and a skating rink. The three destination malls on Sheikh Zayed Road have all since expanded and are continuing to develop further. As of 2016 Ibn Battuta Mall received more than 20m visitors per year, the Mall of the Emirates had an annual footfall of 42m, while the Dubai Mall had 80m visitors, with Emaar aiming to see the number rise to 100m following the completion of its latest expansion plans.

Economic Impact

The significance of retail to the economy is demonstrated by the size of its contribution to GDP when compared to other leading sectors of the economy. According to data from the Dubai Statistics Centre (DSC), the wholesale and retail sector, which also includes vehicles sales and repairs, contributed 24.8% to Dubai’s GDP at current prices in the first quarter of 2017. The second-largest contributor to GDP was the transport and storage sector with 12.3%, followed by financial and insurance activities (11.8%), manufacturing (9.4%), construction (7%) and real estate activities (7%).

The interdependence of these sectors has played a key role in Dubai’s growth story for several decades. The transport industry, which brings goods into Jebel Ali Port and millions of passengers into the emirate’s two international airports, helps underpin the sector, which in turn creates demand for the real estate and construction sectors as new malls and outlets are built and leased. “Since its value is continuously increasing, land is the most important asset a company can have in the UAE. This is especially important when it comes to the retail sector, where space is a vital component of the cost structure,” Khalid Humaid Al Falasi, CEO of the retail firm Union Coop, told OBG.

The wholesale and retail sector’s total contribution to GDP amounted to Dh24.4bn ($6.6bn) in the first quarter of 2017, representing a 1.3% y-o-y growth. Retail businesses employed 14.5% of the emirate’s workforce in 2016, making it the second-largest employer. The biggest employer was construction, which accounted for 25.6% of workers.

Dubai has some unique characteristics as a shopping hub, both in terms of its customer base and the ownership of malls, outlets and brands. In its “Dubai Retail Review 2017” report, Savills reported that 89% of store space at larger malls comprising at least 10,000 sq metres is owned by five state-backed developers: Emaar, Nakheel, Majid Al Futtaim, Al Futtaim and Meraas, with 15 vendors operating almost 90% of the international retail and food and beverage (F&B) brands. Most international brands enter into licensing agreements with these trading groups, which typically include family-owned conglomerates, better placed to negotiate terms and conditions with the developers.

Emaar Malls

Emaar Malls floated on the Dubai Financial Market (DFM) in 2014, and in both 2014 and 2015 the company reported a 23% increase in its net profits, 13% in 2016 and 6% in the first nine months of 2017. As well as its flagship, The Dubai Mall, the company also operates Dubai Marina Mall, Souk Al Bahar, Gold and Diamond Park, and a number of smaller community shopping centres.

Emaar made net profits of Dh1.87bn ($509m) in 2016 on revenues of Dh3.23bn ($879.2m), with earnings up 8% on 2015. In the first nine months of 2017, net profits reached Dh1.5bn ($400m), representing 6% y-o-y growth, due to a decline in overhead expenditure, and sales and marketing expenses.

In terms of overall visitors, in 2016 the company’s malls had a footfall of 125m people. In the first nine months of 2017 visitor traffic to all its malls increased by 5% y-o-y to 95m, with The Dubai Mall visited by 58m people in the first nine months of 2017. As of January 2018, Emaar Malls was undergoing an additional 55,700-sq-metre GLA extension to its Fashion Avenue at The Dubai Mall, adding 150 retail, F&B and leisure brands. The developer is also building The Souk, a 23,000-sq-metre GLA concept retail centre at the Dubai Springs Village. Added to this, Emaar is launching Dubai Hills Mall, a retail and leisure district scheduled to open in 2019. The project will include 750 outlets and add around 186,000 sq metres of GLA. There are several other plans in the pipeline, including a shopping district for the 6-sq-km Dubai Creek Harbour waterfront mega-development featuring The Tower, which will become the tallest building in Dubai upon completion in 2020.

Nakheel

Nakheel Properties is a public joint stock company responsible for some of the city’s most well-known developments, including Palm Jumeirah, The World Islands and Deira Island. Its property development portfolio spans more than 15,000 ha, housing more than 270,000 people with a further 21,000 residential units under construction. Its current and future retail assets cover 1.6m sq metres.

In addition to its Ibn Battuta Mall, developments include Dragon Mall, Golden Mile Galleria, Nakheel Mall, The Pointe, Deira Mall, Deira Islands Night Souk, Warsan Souk, Al Khail Avenue, The Circle Mall and Nad Al Sheba Mall. The property development company also boasts a number of hospitality assets. In 2016 the firm – including its real estate, retail and hospitality divisions – recorded a 13% increase in net profit to Dh4.96bn ($1.4bn), reporting that its retail revenues grew by 70%. This strong performance was followed by net profits of Dh4bn ($1.1bn) in the first nine months of 2017, a 2.5% y-o-y growth. During 2016 the company expanded its GLA to 400,000 sq metres by completing the first phase of its expansion at Ibn Battuta Mall, as well as pavilions at Dubai International City and Al Furjan, and the Club Vista Mare restaurant plaza on Palm Jumeirah – developments that collectively added 37,000 sq metres of GLA. Revenues from non-development business streams, including retail, increased from Dh800m ($217.8m) in 2010 to Dh2.5bn ($680.5m) in 2017. In the first half of 2017 Nakheel reported a net profit of Dh2.64bn (718.6m), slightly down on the Dh2.95bn ($803m) it cleared in the first six months of 2016. Also in 2017 Nakheel signed a Dh4.2bn ($1.1bn) construction contract for the Deira Mall located on the Deira Islands and a Dh1.5bn ($408.3m) contract for The Palm Gateway at Palm Jumeirah.

Majid Al Futtaim

Of the top-five developers Majid Al Futtaim Group has expanded the most since its inception, finding what works in its local malls and subsequently replicating that model across the region. In 1995 the company was searching for a supermarket to anchor its new City Centre Deira development, signing a franchise agreement with what was to become Carrefour.

As of 2017 Majid Al Futtaim operated 210 Carrefour supermarkets and 90 hypermarkets in 15 countries, and its market reach within the sector is set to expand even further. The company’s acquisition of Retail Arabia from BMA International brought 26 Géant hypermarkets – later rebranded as Carrefour – to the UAE, Kuwait and Bahrain under the Majid Al Futtaim banner. The group has exclusive rights to the brand in a total of 38 countries in the Middle East, Central Asia, Africa and Russia.

Hypermarkets and supermarkets are part of the company’s retail portfolio, along with fashion, with the firm in possession of exclusive rights to brands such as US clothes shop Abercrombie & Fitch, UK fashion house AllSaints, and yoga-inspired athletic wear company Lululemon Athletica in 135 stores across the MENA region. The group also franchises speciality stores, and in 2015 opened three licensed LEGO stores in Dubai, two in Kuwait and one in Abu Dhabi. Its F&B division – a joint venture with Dubai-based Gourmet Gulf – gives Majid Al Futtaim exclusive licensing and franchise rights to California Pizza Kitchen, YO! Sushi and the Hummingbird Bakery, with more than 20 outlets in the GCC and India. The group’s malls are designed to offer entertainment as well as shops, food and services. Its own brand VOX Cinemas is the largest and fastest-growing cinema in the Middle East, catering to 50m cinema-goers per year. Its 29 cinema complexes are equipped with 284 screens, including 163 in the UAE, 15 screens in Lebanon, 47 in Oman, 21 in Egypt, 20 in Bahrain and 18 in Qatar. In 2016 the entertainment company unveiled its first VOX outdoor cinema in Dubai.

The leisure and entertainment division includes the Ski Dubai indoor ski resort at the Mall of the Emirates, the vertical wind tunnel iFly Dubai, an edutainment centre Little Explorers at City Centre Mirdif and a water park in Bahrain. The group’s property division includes 21 shopping malls, with a combined GLA of 1m sq metres, 3000 retailers serving more than 178m customers per year, and also runs 12 hotels including 8 brands serving 1.5m guests annually. The company has also branched out into consumer finance, a health care arm that operates five clinics in Dubai and Sharjah, and an energy and facilities management branch that is currently undertaking a joint venture with French company Veolia. Majid Al Futtaim reported a 9% increase in revenues for 2016, taking in Dh29.9bn ($8.1bn), with earnings before interest, tax, depreciation and amortisation (EBITDA) of Dh4.2bn ($1.1bn).

In the first half of 2017 the group saw its revenues grow by 4% when compared with the same period in 2016, to hit Dh15.7bn ($4.3bn), with EBITDA at Dh2bn ($544.4m). In a note on the financial statements, the company commented that revenue expansion would have reached 12% had it not been affected by the devaluation of the Egyptian currency in 2016. As of August 2017 the company employed 39,000 people and held estimated total assets of Dh56.1bn ($15.3bn). Furthermore, the company held a BBB credit rating from both Standard & Poor’s and Fitch.

Al Futtaim

Another branch of the Al Futtaim family, run by Omar and Abdulla Al Futtaim, opened Ikea in 1991 and Marks & Spencer in 1998. The company’s Dubai Festival City Mall opened in 2005 with 400 stores and 230,000 sq metres of GLA. It includes, among other brands, Ikea, Toys “R” Us, Ted Baker and Ace Hardware. The waterfront dining area boasts 75 restaurants, including Hard Rock Cafe and Imagine, the world’s largest water screen projection.

The Al Futtaim group employs 42,000 people in its automotive, retail, real estate and financial services divisions in a business built on brand and franchise agreements with over 200 international companies. The company’s retail footprint includes agreements across the MENA region and South-east Asia, while its automotive arm operates in 14 countries servicing motorists, fleet owners and contractors. In operation since the 1930s, the conglomerate’s first involvement in international agreements dates back to 1955 when Al Futtaim Motors brought Toyota BJ Jeeps and Toyopets to Dubai. In 1971 it landed a distribution and sales agreement with Honda, followed by Volvo trucks in 1975, Chrysler in 1986, Lexus in 1990 and car rental company Hertz in 1993.

Meraas

The holding company Meraas has a diverse portfolio of activity including real estate, health care, hospitality, leisure and entertainment, F&B and retail. Its developments include Boxpark, a 1.2-km district inspired by urban renewal projects in other cities. The facility encourages artists and entertainers, comprising 44 stores modelled on warehouse containers. City Walk consists of 34 five-storey and six-storey buildings for mixed residential and commercial use and 300 retail units with a focus on fashion.

The Market, another concept project geared towards customers looking for a unique souq-like experience, opens from November to May as part of The Beach, a seafront leisure, dining and fitness destination. The Outlet Village, adjacent to Parks and Resorts near Jebel Ali, is an Italian-themed mall with 125 designer labels at discount prices. After the completion of an expansion project in 2018 the outlets will have just under 420,000 sq metres of retail space, with 350 vendors and 450 international brands appealing to a more price-conscious consumer.

Newcomers

While well-established larger mall operators are continuing to develop on the back of healthy profits (see analysis), the situation has been more challenging for those trying to break into the market by promoting new brands.

Shortly before Emaar Malls’ record-breaking initial public offering, Marka was floated on the DFM in September 2014 with capital of Dh500m ($136.1m). The company’s portfolio focuses on luxury apparel, accessories, sports merchandise, and mid- to high-end cafes and restaurants. It also includes fashion labels Dinh Van, Carven, Essentiel Antwerp and Weill; hospitality concepts, such as Ca’puccino, Harper’s Bazaar Cafe, Morelli’s Gelato and Reem Al Bawadi; and athletic brands, such as Cheeky Monkeys, Icons, Modell’s Sporting Goods and the UEFA Champions League Experience. In January 2017 Marka Holding announced an agreement with football club Real Madrid, giving it exclusive rights to manufacture, distribute and sell UEFA products across the GCC. Meanwhile, in an effort to support innovative local designers, in February 2017 Marka introduced a new fashion brand called Paris 68 to showcase ranges of apparel and accessories targeting the typically younger high-street shopper.

Marka’s financial statements for 2016 show that while revenue grew from Dh214m ($58.3m) in 2015 to Dh294m ($80m) in 2016, losses increased from Dh55.5m ($15.1m) in 2015 to Dh149m ($40.6m) in 2016. Furthermore, the company’s financial performance failed to improve in the first half of 2017, with net revenues down 64.9% y-o-y to Dh58m ($15.5m) and losses up 316.6% y-o-y hitting Dh153.8m ($41m).

In May 2017 Benoit Lamonerie was appointed as the company’s new CEO, replacing Nick Peel who had been with the business from August 2014 until resigning in December 2016. Lamonerie joined the company from Gulf General Investment Company, and prior to that he had worked for Union Properties and the motor sports circuit Dubai Autodrome.

An Unusual Year

The emirate has long enjoyed a reputation as a haven of prosperity and stability in a wider region beset by geopolitical difficulties and economic challenges. While this reputation is well earned, the city’s businesses were not totally insulated from external factors in 2017.

Many firms in segments that have been traditional mainstays of the emirate’s retail industry – from luxury goods and jewellery to consumer electronics – noted an atypical pattern of sales during the year. “We have witnessed an unpredictable year in 2017,” Rihen Mehta, chairman of 7Cs Group, a wholesale and retail diamond and jewellery company, told OBG. “The first quarter is usually our peak season, with tourists attracted to the Dubai Shopping Festival, and typically the second quarter and summer months are slower. However, in 2017 the malls were empty in March but extremely busy in July.”

Saudi Austerity

Many luxury brand vendors believe austerity measures in neighbouring Saudi Arabia contributed to flat trading in the winter months. In the face of a decline in oil revenues, in September 2016 the Saudi government froze bonuses to its public sector workers worth as much as 25% of take-home pay, and reduced the annual holiday entitlement to 30 days. Of the 3m Saudi nationals in the workforce in the fourth quarter of 2016, 1.2m were working for the civil service. While the benefits were restored in April 2017, the effect had already been felt in Dubai.

Saudi Arabia has been a particularly strong source of customers. According to the DSC, the numbers of international travellers from the kingdom grew by 22% to 1.54m in 2015, and then by 6% to 1.64m in 2016. However, between the third and fourth quarters of 2016, Saudi visitor numbers fell from 529,000 to 354,000. In the first nine months of 2017 there were 1.25m visitors from the kingdom, down 2.6% y-o-y. “Saudi Arabian shoppers are very important to Dubai, both in terms of numbers of tourists and in the amount they spend, and so when we see a decline in tourists or any factors that impact their spending power – such as curbs in public sector wages – then we will feel it here, especially in the luxury segment,” Melissa Webb, department manager of market intelligence at Chalhoub Group, told OBG.

In addition to the austerity measures being implemented in the GCC’s oil-producing countries, the spending power of visitors from other countries has been adversely affected by exchange rate fluctuations. With its currency pegged to a strong US dollar, Dubai’s prices became particularly expensive for Russian tourists after the rouble’s collapse in December 2014, and for British travellers after the June 2016 Brexit referendum. However, changes to visa policy and the rebound in the rouble has seen more Russians returning (see analysis).

Softening Rents

External factors coupled with the addition of just under 250,000 sq metres of new leasable area in Dubai has seen a softening in rents at some malls. Real estate consultancy JLL noted a single digit decline in rents in the second quarter of 2017, which it said supported anecdotal reports that the market was coming under pressure. Both JLL and global real estate consultant Knight Frank reported that although occupancy remained high in super regional malls, the owners of other shopping centres were prepared to offer promotions and price reductions to retain business. “It’s a tenants’ market across all sectors in Dubai at the moment, but I remain confident about the future of retail, even with the strong dollar currently making it an expensive luxury destination,” James Lewis, partner/general manager of Knight Frank Middle East, told OBG.

Another challenge faced by Dubai retailers, alongside other UAE businesses, is the introduction of value-added tax (VAT) from January 2018. The new tax will be applied to commercial leases for mall tenants, but also to most of the goods being sold in the emirate’s shops. Some believe there may be a short-term impact, but that ultimately consumers will take the 5% levy in their stride. “Towards the end of 2017 some people may have rushed out to try and beat the introduction of the new tax, but I don’t think that beyond that there was a significant impact on our industry,” Ahmed Rahmy, research and analytics manager at Magrabi Optical, told OBG.

Changing Roles

The function of some shopping malls is also changing as individual retailers come under pressure. While some have been forced to shut up shop altogether, in some instances vacant units are being taken over by alternative vendors. At BurJuman Mall in Bur Dubai, for example, a medical clinic was set to open by the end of 2017, with plans to open an extended family entertainment centre. “There are new offerings at the malls wherever you look, such as a medical clinic and additional F&B outlets, meaning that while you wait to see the doctor you can take a stroll around the shops or have something to eat,” Lea Venezuela, director at the Middle East Council of Shopping Centres, told OBG. It is a trend that has also been observed by one of Dubai’s biggest consumer electronics retailers, Eros Group. “When I talk to the malls it is my understanding that the owners are looking more at F&B and entertainment, and I believe some of the new malls are facing a tough time lining up tenants,” Deepak Babani, executive vice-chairman at Eros Group, told OBG.

Clicks & Bricks

Although Dubai – and the MENA region in general – may have been slower to embrace online retail than some parts of the world, there were some potentially game-changing developments in 2017. In July an Amazon filing with NASDAQ Dubai revealed the company had purchased local online retailer Souq.com for $580m. A year earlier, in a previous funding round, Souq.com had been reportedly valued at $1bn, with reports that Emaar Malls had been prepared to offer $850m.

Founded in 2005 by the Syrian-born entrepreneur Ronaldo Mouchawar, the online retailer had originally been part of an Arab online services provider Maktoob, but was spun off when the parent company was bought by Yahoo, according to international media. At the time of the sale Souq.com employed 3000 people, was receiving 23m online visits per month and had an inventory of 400,000 products. The impact Amazon will have on online shopping in the region remains to be seen now that it has secured such a firm foothold in the market.

Noon.Com

Some of Dubai’s home-grown retail businesses and investors are also determined to carve a share out of the Middle East online market. In November 2016 Mohamed Alabbar, chairman at Emaar Group and Saudi Arabia’s Public Investment Fund (PIF), announced the launch of Noon.com, a $1bn e-commerce platform. Alabbar will lead a group of investors in providing 50% of the required capital, with the PIF financing the remaining share. At the launch of the platform it was announced Noon.com would carry 20m products, compared with Amazon’s 372m products as of July 2017.

Raised Stakes

Through a number of investment vehicles Alabbar acquired stakes in several businesses in 2016 that would support the new platform, including a 16.45% share in the Dubai-based logistics firm Aramex, which will be used to deliver goods; a 26% share of Americana Group, a Kuwaiti food company, bought for $2.36bn; and a 4% holding in Yoox Net-a-Porter Group, an Italian online store. In March 2017 Alabbar paid $151m for a 51% stake in Namshi, an e-commerce fashion retailer from Global Fashion Group, a Rocket Internet start-up. Then in early May 2017 a technology fund headed by Alabbar acquired the UAE online marketplace JadoPado. In July 2017 it was announced that Faraz Khalid, the founder and former managing director of online clothing house Namshi.com, would take the role as CEO at Noon. com, steering the company through its launch phase. While Noon.com could potentially leverage Dubai’s expertise and provide shoppers with a significantly improved online experience, some existing businesses note that there are barrier costs and issues associated with expansion into the e-commerce business segment. In large countries such as the US, China, Russia and India, online shopping gives customers access to brands and items they would find it difficult to buy over the counter, and they typically expect to see a discount on price, a situation that differs from that of Dubai.

“In Dubai everyone lives near a mall, so goods are accessible. As a business I have to factor in the cost of delivery and the cost of returns if people decide they do not like a particular product,” Deepak Babani, executive vice-chairman at Eros Group, told OBG. However, the combined impact of Noon.com’s launch and Amazon’s control of Souq.com could extend the Dubai experience to consumers across the Arab world and even further afield. E-commerce businesses could reach customers who otherwise cannot visit the emirate in person, and have its goods delivered to their doorstep. “The growth of e-commerce in the region has been very important in the last few years and it still has plenty of room to grow,” Geoff Walsh, country manager of DHL, told OBG.

Digital Marketplace

Despite the growing dominance of digital e-commerce platforms, such as Amazon, there are retailers who insist their products are best sold in the hands-on, tactile environment of a bricks-and-mortar store.

“From our industry’s perspective, the online arena is only for advertising and to promote the brands, but when customers buy our products, it’s all about being able to feel it, to try it on and to see that it looks good,” Ahmed Rahmy, research and analytics manager at Magrabi Optical, told OBG. In contrast, another leading business in Dubai, Chalhoub Group, is challenging these assumptions. According to PwC, 2.6% of total retail sales were made online in the emirate, against 7% globally, in 2015, with online luxury goods accounting for 2.5% of the segment’s total sales – worth an estimated $200m-230m.

E-commerce’s contribution to the GCC’s high-end market is expected to reach a total value of $1.5bn by 2021, as sellers learn to interact more effectively with younger, more tech-savvy customers in a multi-channel environment. “Millennials are changing the landscape of the retail industry. They have purchasing power, but their motivations are different in that they prefer uniqueness to traditional ideas of luxury. They are also much more digitally savvy, requiring companies to invest in complex digital strategies,” Patrick Chalhoub, CEO of Chalhoub Group, told OBG.

However, there is a question as to how to appeal to shoppers accustomed to a conventional upscale environment. “The challenge in luxury goods is how we translate the atmosphere and customer service of our stores to the online environment,” Webb told OBG. “The other issue with luxury online is that discounting and luxury are very different things, and with luxury the essence is the service our customers receive – the story we tell – and you lose a lot of that online. We do not wish to see our online sites as a discount alternative, rather as a platform through which we facilitate access to the brand.”

According to Chalhoub Group, social media influencers had a role in developing luxury brand awareness, such as the Dubai-based beauty blogger Huda Kattan, who has 23.8m followers on Instagram and 2.1m YouTube subscribers as of January 2018 and was ranked the world’s third-most influential beauty influencer by Forbes. With a workforce of 44, including 17 based locally, Huda Kattan manufactures and sells beauty products, including false eyelashes favoured by celebrities, such as Kim Kardashian, through Sephora in the US and Harrods in London.

The power of social media is also recognised in the way that retailers react with and reward consumers through their loyalty programmes, enabling customers to become market influencers in their own right. “Customer relationships today happen beyond the checkout or online basket. People want to be rewarded for their interactions not just the money that they spend, so a brand might reward people for sharing a social media post or completing an online survey, and in this way a brand develops a digital ecosystem with multiple touch points, creating a ubiquitous customer dialogue,” Lama Mahmalji, director of insights and customer relationship management at Air Miles Middle East, told OBG.

From the perspective of retailers, these customer interactions also provide valuable data that can be used to provide real-time insights into consumer behaviour, through predictive modelling and user behaviour analytics. The Majid Al Futtaim School of Analytics and Technology was established in 2017 to ensure the company’s staff are able to understand digital techniques. Chalhoub Group is also changing. “Digital transformation is one of the key themes of our business at the moment, and it’s not just a question of how we create a digital department, but how we change our whole organisation to accommodate that and do the same in our stores,” Webb added.

Automotives

Between 2010 and 2014 Dubai’s automotive retail sector benefitted from continuous double-digit revenue growth for most established dealerships and manufacturers operating in the emirate. However, the slow-down in sales over 2016 and 2017 has been felt across the GCC. New automobile sales in the region were down by an average of 30% y-o-y in the first quarter of 2017, according to a July 2017 report released by Autodata Middle East. The greatest losses were seen in Bahrain (41%), Saudi Arabia (38%) and the UAE (28%).

Dealers were hoping the end of year sales in 2017 would boost purchases, with domestic consumers looking to purchase an automobile before the new VAT came into effect in January 2018, adding an additional 5% to overall costs. Less affected by market turbulence, luxury cars still account for a big chunk of the automotive market in the region.

“High-end demand is driven by nationals’ attachment to cars with powerful internal combustion engines. As such, this segment has continued to do well despite the broader reduction in automotive sales,” Ahmed Al Habtoor, CEO of Al Habtoor Motors, told OBG. However, more economical cars could be set to increase their share. “Given growing competition and the slowdown in sales, automotive retailers are focusing more on keeping mid-market users happy,” Habtoor added.

Outlook

Although the sector’s performance remains strong overall, retailers experienced some challenges in both 2016 and 2017. While the emirate is not overly dependent on tourists from any one particular country, the reduction in visitors from Saudi Arabia had a noticeable impact on the retail sector, especially in the luxury segment.

Nevertheless, with the end of austerity, numbers are picking back up, although the impact of low crude oil prices on oil-producing economies and the strength of the dirham, which is pegged to the US dollar, are among factors that give cause for concern. Still, the sector reacted to market changes by adapting its underperforming retail space for alternative purposes, while shifting focus to the previously overlooked e-commerce segment. Looking further ahead, Expo 2020, an international exposition focusing on human ingenuity and exploring themes of opportunity, mobility and sustainability, offers the prospect of an influx of new shoppers to existing malls and those currently under construction. Dubai hopes to host over 20m international and domestic overnight visitors in the year of the event, double the number in 2012 and 34% more than the 14.9m in 2016.

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The Report: Dubai 2018

Retail chapter from The Report: Dubai 2018

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